Bitoin’s hash rate, and therefore, miner difficulty, have both dropped considerably from their May all time highs (ATH). But these aren’t just arbitrary sets of data. Rather, they’re important metrics that give us insight on bitcoin’s price peaks and bottoms.

And right now, the metrics are telling us that we might be close to a bottom. So, let’s break down the data and see what we can conclude about bitcoin’s current price levels.

https://preview.redd.it/1j586w10k1cd1.png?width=1582&format=png&auto=webp&s=e4b8d1eec65c435b0d2fe4194e6242aecfc11b05

Bitcoin’s Hash Rate, Miner Difficulty, and Price

Let’s first understand the relationship between bitcoin’s hash rate, miner difficulty, and price. Because these factors all influence each other.

Hash rate measures the total amount of computing power and electricity that miners use to secure the network. Bitcoin’s difficulty adjustment is a hard-coded algorithm that makes it more or less difficult for miners to create new blocks.

So as bitcoin’s hash rate changes, the difficulty adjustment follows in the same direction. Satoshi designed the system this way to ensure that only one block would be created every 10 minutes.

Now, bitcoin’s price matters here because it costs miners money to contribute computing power and electricity to the network. And the miners’ rewards for this work is freshly mined bitcoin.

Therefore, when price is high relative to hash rate and difficulty, times are good, miners are making money, and they’re able to HODL more bitcoin. But when price is low relative to these metrics, it puts the squeeze on miners, and forces them to sell off more bitcoin to pay the bills.

Miner Capitulation Signals Price Bottom

So, the May ATHs in hash rate and difficulty, combined with April’s halving, explains why miners have been net sellers over the last few months.

And this also explains why hash rate and difficulty adjustment have just now dropped from their ATHs by 11% and 10%, respectively. The economics are so rough that some miners are shutting off their machines.

But it’s here where we find our silver lining in terms of price.

The last time bitcoin had such a significant drop in hash rate and difficulty was late 2022, when FTX and major bitcoin miners were going bust. And this was also the time when bitcoin’s price bottomed just below $20K.

https://preview.redd.it/bviwslbek1cd1.png?width=1349&format=png&auto=webp&s=2816231c2fd91e841464e8cbda5f25a0393ae705

And related to all of this is the Puell Multiple indicator, which focuses on bitcoin miner revenues.

https://preview.redd.it/vm60vjafk1cd1.png?width=1486&format=png&auto=webp&s=abbee7616ac3d0f7af69a4fd8b21f43664c2b694

Although the volatility in the Puell Multiple has been declining over time, what’s obvious is that when the multiple lands in the red zone, it often indicates a price top, with hits in the green zone indicating a price bottom.

Currently, the Puell Multiple is getting dangerously close to the green.

Subscribe to newsletters like checkonchain.com ($300/year) or onchaincrypto.substack.com (free) to get these creative insights flowing.